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Democratization of the Energy Sector?

Australia is currently at the forefront of the residential solar revolution.  Why?  Well, for a start, we have impressive solar resources.  We also have one of the world’s most enthusiastic populations when it comes to solar technology.  And now that batteries are widely available and dissatisfaction with energy utilities is high, the perfect conditions are in place for the dawn of a population of ‘prosumers’!

Researchers and those in the energy industry provide three reasons householders invest in solar technology – an interest in saving money, minimising their carbon footprint, and reducing their reliance on energy utilities.  In particular, this third idea of a ‘democratised’ energy system is gaining momentum.  The power of electricity generation could be in the hands of mums and dads across the country.  The introduction of EV vehicles into the car market could further spur investment in integrated systems, with the potential that households could eliminate their reliance on fossil fuels altogether!

In order to help householders come to terms with these technologies there are a number of applications and service providers available to assist consumers with balancing the incoming and outgoing energy between a solar system, a battery, an electric vehicle and a home.  All these tools could see consumers maximising the financial benefits of their systems, maintaining a reliability of supply and all without lifting a finger.

And yet, disconnection from the network is probably a long way off.  When the days are hot and long and the air-conditioner is using more than the solar panels can produce, or in the unfortunate situation of cloudy skies for days on end during the winter months, the average residential solar/battery combo may not be able to provide enough electricity.  Here’s where the energy utilities step in – acting as a back-up source of electricity to residential renewable systems.  And for this service, energy utilities will charge householders.

Alternatively, however, energy utilities can see great potential in being able to access householders’ systems.  If too much electricity is being pumped into a distribution line they could divert it to someone’s battery.  If there’s a sudden demand for electricity, they could ‘borrow’ some electricity from this same battery.  They could take out energy from an electric vehicle in the afternoon, and then replace it later at night.  In doing so, network operators could avoid additional network investments.  Retailers could access household energy and reduce their demand for large-scale generation at higher wholesale prices. Both would have financial benefits for the energy utilities, which could lead to significant financial benefits for consumers.  And yet in both cases householders would essentially be fronting up the cash to invest in energy infrastructure that would benefit the energy utilities.

So much for democratisation?

The truth is that a ‘democratisation’ of the energy system might end up looking a lot like how the energy system looks now.  Householders would invest in technology for its green benefits and for financial rewards, but all the decision-making would be transferred to a utility.  The utility, whether it’s a large-scale network operator or a boutique retailer, would set prices, make decisions around the flow of energy and provide information to the consumer.  The consumer, in turn, wouldn’t have to concern themselves with monitoring their own energy consumption to the nth degree, and could shop around for packages that they think provide the best financial advantages.

But how do we transition to this new state where energy utilities are actively engaged with householders and their electricity systems rather than blindly accepting electricity fed into a distribution network?  Australia’s utilities have a poor reputation for engaging with the general public.  Media attention has been focussing on the ‘gold-plating’ of networks in the National Electricity Market, pouring investment into networks for marginal, unnecessary reliability gains.  Additionally, utilities have been guilty of alienating solar consumers in particular, with claims that solar consumers are ‘shirking their dues’ in relation to avoided network charges, and with some proposing to specifically tax solar households.  The result of these interactions is simple – solar customers don’t like energy utilities.

While so much of the discussion about twenty first century energy transitions is focussed on technology and policy we forget that the greatest investors, decision-makers and promoters of the energy transition are sitting on couches, in living rooms around the world. They are trading opinions on internet forums and over cups of tea, not in corporate boardrooms. If we really want to make the most of this energy transition, if we want to minimise costs, maximise the use of renewable energy and do so efficiently we need to have the networks, retailers and, most importantly, the consumers on the journey together.  And so we need to reframe the way the public looks at energy utilities, not as monolithic structures that make prices and send bills, but as integrated service-providers that are responsive to people’s needs and capable of providing accessible information that will help householders feel confident in their own decision-making.

Photo Credit: Slim Dandy via Flickr

Discussions

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Nathan Wilson's picture
Nathan Wilson on Apr 25, 2016

… solar customers don’t like energy utilities.
No surprise there. With the clean energy media acting as cheer-leaders for residential solar, it’s utilities that have been stuck in the role of whistle-blower, telling us the bad news.

In the US for example, the industry trade organization the SEIA (http://www.seia.org/research-resources/us-solar-market-insight) has once again reported that utility scale solar power is under half the cost of residential (it’s always been that way); we don’t hear about that in the news. Furthermore, though enthusiasts would like to ignore the fact, PV panels don’t make the energy product we need (electricity on demand); it’s only when PV power is combined with grid power (delivered over a grid whose total cost to society is greater than that of the energy it carries) that it becomes a useful product.

More and more, the solar energy subsidies which favor residential solar with much larger per-kWh subsidies compared to utility clean energy is being viewed as a ridiculous transfer of wealth from the poor to the rich (much like poor tax payers in Norway helping their wealthy become the largest per capita market for luxury Tesla EVs, http://www.nytimes.com/2015/10/17/business/international/norway-is-globa...).

The complexity of energy economics and utility billing plans helps to conceal the cost shifting caused by residential power generation. Electricity system costs can be divided into fixed and variable costs. Typically the majority of system wide costs are fixed (i.e. power plants and the distribution grid), but typically residential users bills are mostly variable (i.e. per kWh). This was a policy decision which encourages conservation and helps small users (i.e. the poor). But the proliferation of residential PV allows a new class of (mostly wealthy) free-loaders who still count on the same access to the grid fixed resources, but don’t pay much into the system.

The other problem with residential PV is that it displaces utility clean energy. As mentioned, utility solar is much cheaper, and PV has also helped suppress the market for utility Concentrating Solar Power with Thermal Energy Storage (CSP with TES). Thermal storage is inherently cheaper than batteries, without the geographic limitations of pumped-hydro. It largely avoids the generation of (especially distributed) chemical waste. CSP plants can also have fossil fuel backup, thus they avoid the duplication of infrastructure and temptation to keep using coal.

Bob Meinetz's picture
Bob Meinetz on Apr 26, 2016

Genevieve, you’re confusing democracy:

“a system of government in which all the people of a state or polity…are involved in making decisions about its affairs, typically by voting to elect representatives to a parliament or similar assembly”

and anarchy:

“the condition of a society, entity, group of people, or a single person that rejects hierarchy”

Hierarchy in energy has profound benefits due to efficiencies and economies of scale. If everyone were permitted to generate their own electricity, human nature suggests many would choose the cheapest way to do so, and burn coal. You can see how that would not create an optimal result for all of society, can’t you?

Genevieve Simpson's picture
Genevieve Simpson on Apr 26, 2016

Hi Nathan,

I agree! There’s definitely friction between the way the clean energy media talks about utilities and their role in the energy industry. This is particularly problematic in Australia where utilities have often been state-funded. The cost of networks is unevenly distributed and falling disproportionately on non-solar households, which is something I hope future tariff structures will remedy. However, I think distributed generation with battery storage has the potential to increase network efficiencies in Australia, which could have benefits for all consumers.

It’s interesting that you note a ‘ridiculous transfer of wealth from the poor to the rich’ in relation to PV subsidies. We’ve been hearing a lot in Australia about solar subsidies as regressive forms of taxation, in particular in relation to feed-in tariffs. I’m concerned about these support mechanisms and the impact they have on vulnerable consumers, and look forward to the day when solar is cost-competitive without subsidies. However, in Western Australia we have seen the largest uptake of solar PV in the ‘mortgage belt’ of lower-than-average incomes. Furthermore, my own research (forthcoming) which has looked specifically at this issue of cross-subsidisation suggests that householders themselves love receiving subsidies, don’t mind paying for subsidies and that many think that ‘funding should go to household projects instead of large, efficient renewable energy projects’. Does this mean that subsidies for domestic solar should persist, even if there is a redistribution of funds? I think it’s a political question as well as a purely economic-rationalist question.

Personally, I would prefer to support the most efficient (technically and economically) form of generation. At the moment that is utility-scale renewables and not domestic PV. But I think we also have to be cognisant of the environment we are in. People want to, and will, install domestic PV and it would be best to develop a way of maximising the benefits to all consumers, including by reducing network investment.

As for CSP – it’s always been my favourite renewable energy type! Scoping projects in Western Australia are currently showing that it is limited in terms of appropriate geographic location (issues with grid connections and appropriateness at latitudes), and we are seeing problems with the availability of water for panel cleaning. But the storage potential of CSP (and Australia’s abundance of sunshine!) make this a promising technology for the future!

Thanks,
Genevieve

Genevieve Simpson's picture
Genevieve Simpson on Apr 26, 2016

Hi Bob,

Thanks for your comment.

I hadn’t thought about comparing democracy with anarchy, but I think a lot of people would prefer your description and be proud to call themselves energy anarchists! I definitely agree that hierarchy has benefits in terms of efficiency (both technical and economic), and I suggest that if we are to make the best of these efficiencies across a network we need to have retailers, network operators and consumers working together.

However, I think your definition of ‘democracy’ has hit the nail on the head by saying that people are ‘involved in making decisions about its affairs’. My point is that householders might believe that they are making decisions by investing in energy infrastructure, but in all likelihood, while still connected to electricity networks, they pass this decision-making to a utility. Hopefully consumers being able to choose their own retailers will become a form of ‘voting’ in itself, with consumers supporting utilities capable of maximising benefits for all consumers, but Australia’s recent history with many of its utilities suggests the decisions of utilities favour incumbent (and often fossil-fuel based) gentailers or their own bottom line (unsurprisingly!). This has the potential to reduce efficiencies across our energy system.

I think you’re right that people choosing to generate their own electricity would choose the cheapest option (including coal if that were the case). Speaking as an Australian, which has a history of some of the highest per capita emissions in the OECD based on our use of domestic coal, I can say that governments also often choose the cheapest option if it is likely to promote growth in GDP. We are lucky that the cost of renewables is making it a more viable option than coal, with economic development in China and India looking to be based on solar in the future!

Nathan Wilson's picture
Nathan Wilson on Apr 26, 2016

the cost of renewables is making it a more viable option than coal, with economic development in China and India looking to be based on solar in the future!
China’s huge hydro contribution (19% of their 2015 generation, over triple what we get in the US, per this source) could allow them to cost effectively integrate more solar and wind. But they don’t need to have enough flexible generation to integrate a majority solar/wind grid, because their nuclear fleet is growing so rapidly (and the nuclear component is easier to integrate, with much less need for flexible generation).

Even so, I suspect that air pollution, and not higher cost, is holding back coal in China.

India is a different story. Their hydro only provides 11% of their electricity, and their nuclear program is very slow moving. Batteries are hopelessly expensive and India does not have a desert climate (i.e. it has clouds), so no matter how cheap solar becomes, it will always be nearly 100% backed up with coal power in India. This is not an economical solution; coal plants have high capital cost and low fuel cost, so it is cheaper to run the coal plants more, and not buy the solar supplement.

So it’s hard to see how solar power can ever be more than window-dressing in an Indian grid that will probably always be dominated by some combination of coal and nuclear.

Nathan Wilson's picture
Nathan Wilson on Apr 26, 2016

I think the window of opportunity for CSP is closing rapidly, and the factors you mentioned combine with competition from PV make it even more hopeless.

We can still have the benefits of combining solar power with Thermal Energy Storage (TES) though, even when that solar is PV. Several of the Gen IV nuclear concepts operate in a good temperature range for TES (e.g. the IFR, which is championed by Australia’s Barry Brook). So we could see a new generation of nuclear plants deployed, which are specifically designed to make electricity only at night!

Bob Meinetz's picture
Bob Meinetz on Apr 26, 2016

Genevieve, thanks for your reply.

For at least two thousand years, civilized people have accepted the idea that with freedom comes responsiblity. In the case of energy freedom, that means taking responsibility for any emissions they create, the impact of which we all must share. Whoever would be proud to call themself an energy anarchist – a believer that no one should be held accountable for the emissions they generate – is someone wholly unworthy of pride.

Retailers, network operators, and consumers working together is a lofty ideal, but due to conflicts of interest it’s never happened and probably never will. Another problem with these ambitious schemata is complexity – what many except competent engineers (like Nathan, above) regard as a solution instead becomes a liability, making any system less efficient, less reliable, and more expensive.

It’s true that householders connected to a utility network essentially pass a personal decision on to a utility, in much the same way they pass decisions about security on to their police and national governments. That they sometimes get it wrong doesn’t mean throwing out all the rules and letting everyone decide for themselves. It means getting it right, while acknowledging it’s not their decision to make alone – that each member of society should have equal say about a topic in which they all have a vested interest.

That’s democracy.

Genevieve Simpson's picture

Thank Genevieve for the Post!

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